Options vs. Equities weekly volume

Week ended 3 Feb 2012: Volume in options trading was 2.03m vs 3.596m in equities. This is a drop of -27% in options contrasting with an increase of +62% in equities trading from the week before. This is not a normal pattern in volume between the two.

The last time we saw this similar pattern was in the week ended 2 Dec 2011. That week, options volume was down by -31% with equities higher in volume by +17%. The XJO was at about the same level as well, it closed at 4288 then. The XJO touched a high of 4294 this week. The only difference between the two periods is that in the week ended 2 Dec 11, the XJO had a huge jump of 7% in the week whilst this time, the XJO did a slow climb since early Jan12 of a 4.7% rise.

If we consider the similarities between the two periods of some weight, then perhaps what happened after 2 dec week, may have some implication for the XJO in the upcoming week.

After the 2 dec week, the XJO fell from the 4288 level in 4 consecutive weeks(including the holiday periods) losing a total of -5.5% to 4058.

Though this one observation is not sufficient to call the market down, but what had been evident last week was that options traders had had lack of conviction on the direction of the market, hence took less positions and could also be a defensive move in not taking new positions with a cautious stance.

It's interesting to see if the 156 points jump on the DOW over the weekend would be sufficient to tip options traders to the bullish side of the market.

As for me, the drop of 5.5% after 2 Dec 2011 would still be at the back of my mind.

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Raymond Chan

Raymond CHAN, Head of Asian Desk - Retail, Morgans Financial Limited

Raymond joined Morgans in 2003, became a top revenue adviser in the main Sydney office for 2010, successfully formed his own office in 2011 and re-joined the Sydney office in 2017 as Head of Asian Desk – Retail, servicing high net worth Asian clients.